Spreading out the asset risk

By Christopher Delporte

A fintech startup has created what it claims is the first online bank-to-bank marketplace designed to help financial institutions mitigate asset risk. The goal of the Miami-based firm — Capstack Technologies — is to create a national platform to sell or buy loans and deposits, giving small and regional banks access to national resources, helping them to mitigate asset risk related to being tied to local and regional resources.

Capstack secured funding from Citi Ventures earlier this year and has expanded its advisory board of small and midsize regional and community banks. Citi’s recent investment, the amount of which was not disclosed, added to a $6 million round of fundraising in the summer of 2023. Jeff Flynn, a director with Citi Ventures, says Capstack’s technology “could fundamentally change the way smaller banks manage risk and grow their businesses.”

Capstack Technologies’ CEO says the company’s technology is designed to align with the U.S. financial sector’s push to diversify loan portfolios “With small and regional banks still very localized, it means that they are not as diversified when it comes to their depositor and lender base,” says Michal Cieplinski, CEO of Capstack. Cieplinski says the product — which the company launched in April — is being closely developed with input from banks so that the technology can best meet financial institution’s needs from day one. “We couldn’t do this without their input throughout development.”

Capstack’s advisory board draws on perspective and expertise from community bank executives. Board members include Trey Maust, executive chairman of Lewis and Clark Bancorp in Oregon City, Oregon, and Patrick Kennedy, executive chairman of TransPecos Banks in San Antonio, Texas.

“A lot of financial technology companies think they understand a problem or have solved for a problem through software, but they really don’t understand the industry or thought their solution from a bank’s perspective,” explains Maust, who was introduced to Cieplinski through a mutual venture capital connection. “But that wasn’t the case with Michal. I’ve been consistently impressed by how frequently he and his team have already thought about questions I’ve had — and have a legitimate banking-focused answer.”

Maust, who is also vice chair of ABA’s Core Platforms Committee, says the Capstack team has “made it a mission” to think of all the questions banks might ask and “be prepared with answers or solutions. I’ve been really impressed by how frequently Michal and his team have considered every angle from a community bank’s perspective.”

This “aligns well” with Maust’s approach to banking, he says. “One of one of the things I spend quite a bit of time on is a combination of policy matters for the banking industry, particularly community banks, as well as crossing over into the regulatory space,” he said. “But also thinking about how we advance the community banking industry into the future — not what do we do today, but how we roll forward in the next 10 or 20 years? Capstack is planning for those future steps. And there’s no system out there like this, especially when it comes to addressing the community bank space — from large community banks to small and midsize institutions.”

Capstack’s bank-to-bank loan marketplace is designed to help banks manage risk through asset diversification with a secure, automated and integrated operating system that works with a bank’s existing core system and trades loans via integrations. It allows for a “seamless” review of all data needed to underwrite a loan, Cieplinski explains. “Before, banks invested without any intel on the loans,” Cieplinski said. “This system provides a complete overview of the originating bank’s performance of the asset.”

Knowing this history is “more than helpful,” Maust says. As a bank is looking to diversify its portfolio, it’s key to understand if a bank has done “a really good job of originating and servicing loans,” he said. “Capstack has focused on that important data — bank’s historical experience in managing those credits, historical delinquencies, by loan type. And it doesn’t just allow for delinquencies, but a variety of other risk considerations such loanto-value debt service coverage and various other credit-quality characteristics. It helps in the decision-making process as you’re diversifying into other product types, loan types or geographies to understand the idiosyncrasies of the new loan types and geography.”

Maust said Capstack also has “really focused” on integrating with core banking and loan origination systems, creating a data exchange system that “speaks the bank’s language.”

“Most community banks will have only so many people on staff, and there’s only so many things we can focus on at one time,” Maust says. “So, we know the value proposition for us: Can we expand our loan portfolio? Or can we reduce our concentration risk in certain loan types? And if we can do it with a platform like this, it’s very attractive, but I wouldn’t want to do it if the bank had to go through a long and complicated implementation process.”

Maust and Cieplinski said that plans call for the marketplace’s capabilities to expand with time. For example, though not part of the initial rollout, future iterations are slated to increase the ease of accounting and funds movement. “The funds flow can be challenging to work out between the two banks,” Maust said, noting that much of that is done manually right now. “Automating that process is a big time savings.”